(Editor’s Note: James Kidney was a trial attorney at the SEC for 25 years until his retirement in 2014.)

James A. Kidney

As the nation approaches the 10th anniversary of the demise of Lehman Brothers, which is popularly pegged as the beginning of the Great Recession, one is struck by the current events that tie back to the world-wide financial crisis of a decade ago.

John McCain again is in the headlines, this time more sadly, as he was when he made a Hail Mary move by temporarily “suspending” his presidential campaign to address the financial crisis — an ill-considered action he came to regret.

Big Wall Street banks are as up to their necks in risky derivatives, as in 2008.

Once again, the political powers are reveling in a long bull market and listening to wealthy bankers proclaim a pressing need to be relieved of minimal regulation.

In the view of some, current threats to the market economy are reminiscent of 2008, along with pollyannaish predictions from lawmakers and regulators from the White House on down that all is sound.

To one who was a bit player trying to enforce the securities law against these same banks and bankers after the crash, the most jarring developments relate to the law enforcement and media interest in conspiracy theories involving President Trump and his cronies.

These developments cause me once again to regret that such interest in conspiracy – a “scheme to defraud” in securities law circles – was not demonstrated by the media and, especially, by law enforcement, beginning 10 years ago.

Driving this home to me was that my old boss, Robert Khuzami, announced on behalf of the U.S. Attorney’s office the plea with former Trump lawyer Michael Cohen, a plea which clearly sounds like a conspiracy to violate campaign laws and the product of a lot of hard work by prosecutors.

Khuzami is now a deputy U.S. attorney for the Southern District of New York, after a stint with a large law firm. But he was the director of the Division of Enforcement of the Securities and Exchange Commission from 2009 to 2013, when several Wall Street banks were subjected to fines for their conduct bringing on the 2008 crash, but no senior, or even middle level, individuals were sued for violating the securities laws.

I was one of several trial lawyers at the SEC involved in the Commission’s investigations into conduct of the big banks and their employees. I can say, based on my experience and that of other trial lawyers, that there was an inexplicable reluctance on the part of the Division of Enforcement to utilize conspiracy theories to investigate – let alone sue – higher ups at Goldman Sachs, Bank of America, Morgan Stanley and other large banks.

Yet, it was obvious to many talented lawyers at the SEC, both senior and junior, that the products offered by these banks to investors were developed cooperatively and approved by knowledgeable men (almost exclusively men) of Wall Street far above the levels of those few who were unfortunate enough to be sued. It is very likely that at least some participated in a scheme to defraud – a conspiracy. But the Division of Enforcement under Khuzami chose to pursue cases almost exclusively on a much narrower “false statement” theory, which courts have increasingly interpreted to mean liability solely for the individual who actually misrepresented to an investor a fraudulent product. In effect, the SEC applied at the outset the narrowest legal theory available to restrict the investigation and, therefore, protect higher-ups from questioning, let alone possible charges. Conspiracy theories were rejected at the outset of most investigations and not pursued.

Let me be clear. We cannot know if higher ups on Wall Street were civilly liable for – or criminally guilty of – a scheme to defraud under the securities laws, i.e., a conspiracy. There was no stomach for investigating such liability, so any such conclusions are lost to history. Lessons that could have been learned for the next time are lost. There will be a next time.

Jesse Eisinger, a reporter for ProPublica, has compiled a narrative of the failure of the SEC and the Department of Justice to bring actions against individuals employed by the biggest Wall Street banks. It is available in his book, The Chickens**t Club. (Full disclosure: I am mentioned in one chapter.)

I have never heard any reason why conspiracy –scheme to defraud – theories were not considered at least as a reason to further investigate. The only answer I am aware of is that the leadership of the SEC and the Division of Enforcement have said they are “proud” of the work they did.

The issue was not one of resources at the SEC. The Division of Enforcement spent substantial amounts of money, assigned a large staff, and aggressively pursued individual executives at the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), who Republicans blamed for the crash to deflect blame from Wall Street. I was assigned to the Fannie Mae investigation, and am friends of staff who were on the Freddie Mac case. As these investigations proceeded, there was much skepticism that these institutions and their senior executives knowingly had engaged in fraud. The evidence of liability was very thin, but the cases were pressed ahead at substantial cost to the agency. The SEC brought suits in both cases in late 2011 against the individual executives alleging fraud based on the mortgage securities business. Since these firms were in federal receivership, the taxpayer, in effect, paid for both the SEC costs and those of defending Fannie and Freddie.

But little was said a few years later when relatively light settlements were agreed upon. Those knowledgeable of such things recognized the settlements were a way for the SEC to drop the Fannie and Freddie matters without any findings of liability. In other words, the SEC resolved the cases with its legal tail between its legs.

Meanwhile, the SEC and the Department of Justice became what I have called The Toll Booths on the Bankster Turnpike. Fines, historically large for the SEC and DOJ, but lunch money for the bankers, were obtained against the banking institutions, sometimes with vague admissions of liability, and agreements to “sin no more” or a deferral of criminal prosecution if steps were taken to heal their ways. Many of these banks have been the subjects of repeated criminal and civil law enforcement actions since, always with the levying of a fine and instructions to not violate the law again. Rinse and repeat. Settling violations of law with fines has become a cost of business for Wall Street.

Some explain the reluctance of law enforcement to more thoroughly investigate the banking frauds to the experience of bringing a criminal action for obstruction of justice against the accounting firm Arthur Andersen in connection with the 2001 Enron Energy accounting scandal. Andersen’s public accounting arm soon went out of business due to legal and regulatory restrictions imposed because of its criminal conduct (though the guilty verdicts were reversed on appeal, too late for the firm). Supposedly as a result, DOJ has been reluctant to bring criminal actions against corporate America which might put innocent employees out of work.

But using the Andersen explanation is illogical as a reason not to bring criminal cases against senior managers. Had DOJ prosecuted the individuals who obstructed justice at Arthur Andersen, and left the corporation alone, the company might still be in business providing gainful and lawful employment.

Others, especially former SEC Chair Mary Jo White, claim that applying the police theory of “broken windows” is effective law enforcement against Wall Street. While at the SEC, White, who, to public knowledge, did not demand action against top Wall Street bankers, gave speeches explaining that a “no tolerance” policy for small broker-dealers, insider traders (who do not usually have any market impact at all) and other street-level miscreants would show Big Business that the SEC was serious. One can only imagine the senior level managers on the fiftieth floor of their big bank buildings and at the headquarters of other public companies figuratively looking out their windows as the SEC “Wall Street cops” round up the street level small fry. “Keep it up, but don’t take the elevator,” they might say, just before approving their next multi-million dollar phony securities deal.

The press, meanwhile, was left with nothing to report except big dollar plea agreements. Media raised questions about why no higher ups were brought to the bar of the law, but were put off by defenses from law enforcers. Memorably, Lanny Breuer, head of the Criminal Division of the Justice Department, in a story by the PBS series Frontline, expressed concern that suing banks would disrupt a recovering economy. Breuer was removed soon after, returning to a lucrative career at a large D.C. law firm, but his removal did little to make DOJ more aggressive.

By 2012, when the wrong-doing began to be exposed, the reporting corps covering the SEC and Wall Street had shrunk due to journalism’s own economic worries. Still, there is some media blame. The press was quite credulous, accepting representations from the SEC and DOJ that “these cases are quite complicated” and that “it is hard to prove who knew what.”

But when a complaint alleged a billion dollar fraud, as was the case with the Goldman Sachs Abacus case and several others, it was absurd to believe that such a scheme could be the sole responsibility of someone so low on the pecking order as a Fabrice Tourre. But, for the most part, the explanations were accepted, perhaps with skepticism but no real investigative reporting.

As the tenth anniversary of the crash approaches, and we hear all about the conspiracies, alleged and confessed, of President Trump and his cronies as a result of aggressive law enforcement, I am reminded of what seems to be a common rule: A good lawyer can bring a case against sleazy politicians and even the President of the United States without fear or favor. But Big Banks with their Big Law Firms – that’s a different story.

When the next big crash happens, will the story still be “rinse and repeat”?